Advantages and Disadvantages of a Lifetime ISA

The Lifetime ISA (LISA) has been introduced to help those aged between 18-39 save for their first home and/or for retirement. Providing you register prior to turning 40 you can put up to £4,000 each year into your LISA until you’re 50, this can be both as stocks and shares investments or cash savings.

As with any form of investment, the value of your money can decrease as well as increase when you invest in a Lifetime ISA. To help you decide whether this form of investment is for you, we’ve listed the advantages and disadvantages below:

Advantages of a Lifetime ISA

First-Time Buyers
If you are a first-time home buyer, and know for certain that you are both eligible for the LISA and plan to use your LISA savings for a deposit on your first home any time after 12 months from opening the account.

25% Government Bonus
The LISA contribution bonus of 25% on top of your investment sum will be paid every year until you turn 50. Ultimately, if you opened a LISA at 18 and contributed the full amount until you turn 50 you could receive £32,000 for free on top of your investments.

Free Transfers
You are be able to transfer your LISA between different providers if interest rates change and you find another provider. This is true for both the current stocks and shares LISA available, and the incoming cash LISA. You can also hold more than one LISA, providing that you only pay into one at any time during each tax year.

Disadvantages of a Lifetime ISA

High Withdrawal Fees
If an investor decides to withdraw the cash from their LISA and spend it on anything other than buying a new home, or before they turn 60, they will be liable to repay all government bonus contributions as well as an additional 5% early withdrawal charge.

Higher-Rate Tax Payers Benefit More from a Pension
A higher rate taxpayer in the UK (anyone paying in the 40% tax-band or above) will be better off with a pension, as their tax-relief will be higher up until they reach their allowances – £40,000 (Annual) and £1,000,000 (Lifetime).

Limited Provider Choice
Currently there are a limited number of LISA providers, none of which are banks or building societies.

Compare Lifetime ISA Providers

Below are the available Lifetime ISA providers on OFF3R:

The Nutmeg Stocks & Shares Lifetime ISA allows you to take advantage of the 25% government top-up bonus towards your first home or retirement.

With the Hargreaves Lansdown Lifetime ISA (LISA) you can invest in the stock market to grow your money and potentially reach your goals quicker. Although investments can go down as well as up so you could get back less than you invest.

Please head over to the OFF3R Lifetime ISA channel for a more detailed comparison of the Lifetime ISA’s available.

Risk Warning

Investing in or lending to early stage businesses involves a high level of risk, including illiquidity (inability to sell assets quickly or without substantial loss in value), lack of dividends, loss of capital and dilution risks and it should be done only as part of a diversified portfolio. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Your capital is at risk.

About the author

Lily Bridgwood

Lily is the Partnerships Associate at OFF3R. She has previous work experience in both the corporate and start-up environments. She joined the OFF3R team in October having recently graduated with First-Class Honours in International Business from the University of Edinburgh.

Risk Warning

Your capital is at risk. The value of your investments can go down as well as up and you may get back less than you invest. Please seek independent financial advice if you are unsure whether an investment is suitable for you. For more information, please see our full risk warning.